CASE STUDY ON

Processed & Packaged Milk Industry

in Pakistan
(In the context of
Presented By:

Mr. Fawad Kaleem - 2666

Ms. Uzma Mehmood - 17749
Reham Abdul Satar
Ammara

(2nd March 2014)

1. Evaluate the Dominant Economic Traits of the Processed & Packaged Milk Industry of
Pakistan?
Ans:

Dominant Economic Traits are evaluated on the following basis;

1.

Market size:

Market size of the Milk industry in Pakistan is 36.2 billion liters of milk, with 80% of market
share is of unbranded and open milk (non packaged milk) and 20% i.e. 7.24 billion liters market
of processed and packaged milk. Family consumption is around 1 liter per person per day (one
of the highest level of milk consumption around world).
2.

Industry Growth:

Milk is amongst the most important consumable and marketable commodities of the world with
enormous demand in domestic and international markets. Processed and packaged milk industry
in Pakistan has been one of the most leading businesses in this sector with a continuous growth
as Pakistan being 4th largest milk producing country in the world.
3.

Number of Rivals:

Currently there are more than 25 dairy processing plants operating in the country. Some major
market players are as follows:
1.
2.
3.
4.
5.
6.
4.

Nestle Pakistan
Tetra Pakistan
Engro Foods
Millac Foods
Noon Pakistan Limited
Prime Dairies
Scope of competitive rivalry

Industry is facing local competition and envisions being the worlds most competitive diary
sector by becoming exporters in its long term competitive success.
5.

Economic Factor:

Milk industry contributes 11% share in GDP and employs 30-35% million rural people and
constitutes 30-40% of their income. The diary sector serving as an Engine of Economic
Growth of the country and develop the socio-economic landscape of rural Pakistan.

6.

Vertical integration

Processed and packaged milk industry has a vertical integration with farmers. Some farmers are
also supply Milk directly to the customers. The integration with farmers and distributors are not
strong as 20% of milk goes waste owing to inappropriate methods of storage and lack of timely
transportation.
7.

Pace of technology change

Advance and improved technology being used in the industry to increase per animal milk
production.
8.

Economies of scale

Change in technology helps in attaining economies of scale by reducing cost and minimize the
competition among farmers to invest in dairy farming and milk processing industry.

2. Apply the Five Forces Model of Competition to analyze the overall attractiveness of the
Processed & Packaged Milk Industry in Pakistan?
Ans: We apply the Porters Five forces Model the Processed and Packaged Milk Industry of
Pakistan to analyze the industry framework and business strategy development. These five forces
signaled out the competitive intensity that has an impact on attractiveness and profitability of the
industry.
1.

Threat of New Entrants :

Factors

HUF

Economies of scale

Low

Capital required

Low

MUF

Neutral

Low

Govt. Action

Low

HF

Access to distribution Ample

channels
Differentiation
Brand Loyalty

MF

comment
High

Improved technology

High

High cost invested by

Engro Foods in starting a
plant

Restricted

20% of milk is wasted.

High

80% are using

unprocessed milk
Policy support from Govt

High

Exit Barriers:
Factors

HUF

MUF

Neutral

MF

HF

comment

Specialized Assets

Low

High

UHT Plants

Fixed Cost of Exit

Low

High

Land and equipments

2.

Competitive Rivalry :

Factors

HUF

MUF

Neutral

MF

HF

Comment

Composition
of
Competitors

Equal Size

Unequal
Size

Differ on basis of
technology

Mkt. Growth
rate

Slow

High

Continuously growing
market

Scope of
competition

Global

Domestic

Local competition with

vision to global
competition

Fixed storage
Cost

High

Low

20% of milk wasted

Capacity
Increase

Large

Small

80% still with raw milk

Advanced Technology
Degree of
Commodity
differentiation

High

3.

Power of Buyer:

Factors

HUF

Number of Important Few

buyers
Threat of Backward
integration

High

MUF

NEUTRAL

MF

HFA

Comment
Many

Low

Only 20% mkt and

lack of distributors
Have own
distribution channels
Processed and
packaged product

Product supplied

Commodit
y

Specialty
Chances to switch to
other industry

Switching cost

High
High

Low

Importance to final
quality of buyers
Product.

Low

High

Milk may get

expired and give
good food to buffalo
and goat

4.

Power of Supplier:

Factors

HUF

MUF

MF

HF

Comment

No, of
important
Suppliers

Few

Many

Raw material from

many farmers

Switching cost

High

Low

Raw material from

many farmers

Availability of
substitutes

Difficult

Many

Raw milk is the only

substitute but many
farmers are available

Threat of
forward
integration

High

Importance of
Buyer industry
to suppliers

Buys small
Proportion

Importance of
suppliers
product to the
buyers
business

High
Importance

Low

Buys large
proportion

Low
Importance

Raw milk is used not

in as many other
industries
Always buy large
proportions

P & P dependz on
sraw milk

5.

Threat of Substitute Product:

Factors
Threat of
Obsolescence
of Industry
Product

HUF
Hi

MF

HF

Low

Perceived Price
Value
High

Comment
Low

Aggressiveness High
of substitute
product in
promotion
Switching cost

MUF

Increasing number of
P&P consumers

Low

No promotions by raw
milk

High

Open milk is cheaper

in price
Open milk is cheaper
in price

Low

Overall Industry Attractiveness

Factors

Unfavorable

Neutral

Entry Barriers
Exit Barriers

Rivalry Among Existing Firms

Power of Buyer

Power of Suppliers
Threat of Substitutes

Favorable

COMMENTS:
Entry Barriers:
There was a time when there was not a big threat of new entrants in this industry, however with
time and with maturity of dairy industry infrastructure threat of new entrants has increased
slightly. As in past it was considered to be a very expensive and costly industry in terms of plants

for packaged and pasteurized milk, whereas now with some government support and so many
options in terms of financing activities, entering dairy industry is not longer a big deal. As with
time and within couple of years so many companies have entered the market which was never
the case if we look back into last 3 or 4 years. So, dairy industry will be facing higher threats if
we look into current situation of market opportunities and market potential, because dairy
industry does carry a high potential of growth in it. This factor can also be justified with the fact
that this industry was not well established in terms of technology and knowledge base of not only
consumers but the producers of raw material and production so as the information and
system is being developed, with good potential of growth this industry will definitely be having
new entrants in coming period of time
Entry Barriers:
Exit barriers are very unfavorable as the cost of plant, equipment and land is very high.
Rivalry Among Existing Firms
Direct competitors are fresh milk supplied directly by the Gawalas to consumers, but they have a
need of dire cash so it is easy and favorable for processed and packaged milk industry to
compete with them. Indirect competitors are Juices or cola industries.
Power of Buyer:
Bargaining power of customers is relatively improving with time as new entrants have entered
the market. But still as this industry is something that relates to health issues and requires
sensitive and taste related issues so bargaining power has been reduced by some major players
using their brand image and quality image in the market. But with time and awareness in the
market, which include both the customers and the suppliers the bargaining power of customers
has been improving but still its not something that can create big fear for the market players
to be afraid of.
Power of Supplier:
Bargaining power of suppliers is not very high in this industry as mostly the suppliers lack of
knowledge in their field and otherwise the milk collections centers are owned by the processors
themselves or either they have a long term contracts with these collection centers. On the other
hand the processing plants or buyers offer lower price to these collection center based on the fact
that these collection centers have their own system of payments to the farmers, based on the
more the payment is paid in advance less is the price in terms of litters, so same is going through
the suppliers and processing units.
Threat of Substitutes:
The P&P milk industry has the highest threat of substitute from the Gawalla market, where a
Gawalla (milk man) delivers the Open milk in the homes by himself. The P & P milk industry
has it the highest threat because the Gawalla market is capturing 80% share of the total milk
industry and processed or packed milk industry has only 20% of the total market share.

Therefore the only major and biggest substitute of P & P milk industry is Gawalla industry. It is
the fact that the consumers may quickly switch to the open milk when there is an increase in the
prices of P & P milk products or decrease in the quality of the P & P milk.

3. What are the Drivers of Change in the Processed and Packaged Milk Industry of
Pakistan? How are these Drivers likely to affect the industry in the future?
Ans: Increasing urban population, more educated consumers and an emerging middle class
have helped increase the growth of packaged milk industry in Pakistan. Industry changes as
forces are driving industry to alter their actions.

Outer ring ( macro-environment)

Inner ring ( micro-envoirment)

Macro Environment Factors:

Increasing companies in the similar field.

Rapid increase in consumption of the milk.
Hygiene factor connected with the usage of milk.
Increasing literacy rate which increase the sense of health care issues.
It contributes 11% of GDP.
Employs 30-35% million rural people and constitutes 30-40% of their income.
The diary sector serving as an Engine of Economic Growth of the country and develop
the socio-economic landscape of rural Pakistan.

Micro Environment Factors:

Competition is being more intense as the re emergence of the pre existing companies and
entering into the market with similar product yet being cost effective.
Industry profitability to be high.
Increasing competition i.e. Different companies entering into similar business.
High market secured by gawalas . (open milk )
Price differentiation with open milk.
As the demand of the product is increasing companies have to be more affective in
producing more units thus investment is being is made in the technology.
New techniques have been adopted
Globalization playing vital role.
Being technologically advance yet cost effective .
Setting up 3rd generation plant.

4. Create an EFAS for Engro Foods?

Ans:
External Strategic Factors
Opportunities
Expansion
Growth
Advance Technology
Increase in Demand
Improved quality
Threats
Prices of Open Milk
Lack of transportation
Lack of healthy feed to
animals

Total Weighted Score

Weight

Rating

Weigtd Sc

0.10
0.15
0.10
0.20
0.10

5
4
3
2
3

0.50
0.60
0.30
0.40
0.30

Investment in other business

Still 80% markets is with open milk
New technologies gives economies of scale
Annual consumption increases
Feed of animals improves the quality

0.15
0.10

5
4

0.75
0.40

0.10

0.40

Low prices offered by Open milk

Wastage of 20% milk
Improve productivity and quality

1.00

4.05

Comments